Accepting The Challenge: Redefining State Regulation Now

A Report Produced by the NAMIC Regulatory Affairs Department
April 18, 2000

The National Association of Mutual Insurance Companies (NAMIC) favors the enactment of more uniform insurance regulatory standards by every state as the last, best hope for maintaining and improving the existing system of sovereign state insurance regulation. The threat to state regulation is so significant today that an unprecedented partnership of industry leaders, regulators and state policymakers is needed to put the necessary reforms in place.

State regulation is imperiled by the National Association of Registered Agents and Brokers (NARAB) provision of the Gramm-Leach-Bliley (GLB) Act. Despite reasserting the primacy of state regulation, GLB still offers federal oversight of producer licensing as an alternative preferable to the different laws of each state. But GLB also allows for the preemption of NARAB if 29 states pass uniform producer laws by November 2002. While producer licensing is only one part of a complex industry, it is not difficult to imagine how failure to respond to the NARAB challenge by industry, regulators and legislators would be viewed as a serious weakness of the present system, adding credibility to arguments for federal regulation.

The National Association of Insurance Commissioners (NAIC) also recognizes the scope of the challenge to state sovereignty. Its Statement of Intent is an ambitious and necessary effort to effect major comprehensive reform of insurance regulation. Seven of the nine regulatory practices identified for redefinition by NAMIC members, the basis of this report, are also included in the NAIC initiative.

While NAMIC endorses regulatory procedures that are more uniform, support for state sovereignty and the authority of states to regulate insurance continues. As used in this report, "uniformity" refers to regulatory procedures applied evenly, leaving undisturbed the authority of state regulators to enforce the law in their state. Regulators should be closest to the companies they oversee and to the consumers they serve. In practice, uniform insurance regulation administered by the states will give insurers more tools to maximize their efficiency and will simplify regulatory enforcement. Consumers will be better served both by insurers and regulators, a necessary result in the era of financial services modernization.